More support to repeal 3% withholding mandate

The National Institute for Governmental Purchasing has started a letter-writing campaign to repeal Section 511 of the Tax Increase Prevention and Reconciliation Act.

Written by Michael Keating (michael.keating@penton.com)

16 Apr 2010

The Reston, Va.-based National Institute for Governmental Purchasing (NIGP), an organization dedicated solely to public purchasing, has started a letter-writing campaign to repeal Section 511 of the Tax Increase Prevention and Reconciliation Act (TIPRA, P.L. 109-222). TIPRA, which is a federal provision, would require that federal, state and local governments withhold 3 percent from nearly all payments for goods and services. The act is scheduled to go into effect on Jan. 1, 2012. The 3 percent withholding would be remitted to the federal government for income tax purposes. TIPRA’s provisions are applicable to governments with annual expenditures in excess of $100 million. (See “Association of state purchasers urges repeal of 3 percent withholding mandate” for information on NASPO’s opposition.)

NIGP’s membership includes 2,500 public purchasing entities representing more then 16,400 individual government procurement professionals. The institute responded to the concerns of its membership regarding Section 511, and asks that interested parties write to federal Office of Management and Budget director Peter Orszag to ask for his support to fully repeal the act.

The withholding provision could affect government procurement departments across the country, said Jill Klaskin Press, assistant to the director in the Miami-Dade County’s Department of Procurement Management. “We believe that if Section 511 is implemented, vendors may simply increase their price offers to governmental entities by 3 percent, in order to compensate for this penalty tax and minimize their loss of revenue,” Klaskin Press told Govpro.com. “This increase in operating costs, on top of the nation’s current financial crisis, would certainly result in a significant reduction of support for critical services to citizens at the federal, state and local levels.”

Klaskin Press has delivered a podcast on the 3 percent withholding provision. The podcast is available on the NIGP News page.

The withholding provision will negatively affect government budgets, said Rick Grimm, NIGP’s chief executive officer: “Entities will likely have to absorb this 3 percent increase in the cost of goods and services, seriously impacting the ability to obtain the lowest possible pricing for purchases utilizing public funds.”

The timing of the legislation is critical as the nation digs out of a recession, added Klaskin Press. “This 3 percent withholding comes at a time when public budgets are particularly strained and effective cash management is critical to stimulating our business markets. Now more than ever, public purchasing officials are charged with maximizing the value of every tax dollar expended.”

NIGP adopted Resolution 1029 in support of repeal of Section 511 of TIPRA and requested all purchasing officials to ask their elected officials to write to their congressional delegates asking for support of full repeal of Section 511.

The House approved full repeal of the 3 percent withholding last year in the ARRA stimulus bill. However, the Senate would only pass a one-year delay of the 3 percent withholding provision. With the one-year delay, the provision will go into effect Jan. 1, 2012.

Legislation to repeal the withholding mandate has been introduced in both the U.S. House of Representatives (H.R. 275) and the U.S. Senate (S. 292). Over the past two years, NIGP has supported both pieces of legislation, which are currently moving through committee.

A total of eight references are available on NIGP’s Resource Links page under the heading “3% Tax Withholding.” The references cover estimated costs to individual states, Senate and House of Representatives legislation, and letters to government representatives.

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